TREASURIES-Prices gain on safety buying after North Korea fires missile

Reuters Staff

3 Min Read

(Adds auction results, quotes, updates prices)
* North Korean missile sparks flight-to-safety buying
* Treasury sells $28 bln seven-year notes to strong demand
* Friday's U.S. employment report in focus
By Karen Brettell
NEW YORK, Aug 29 (Reuters) - U.S. benchmark 10-year Treasury
note yields fell on Tuesday to their lowest since last November
after North Korea fired a ballistic missile over northern Japan
and into the sea, sparking safety buying of the bonds.
The action prompted a warning from U.S. President Donald
Trump, calls to residents to take cover and drew a sharp
reaction from Japanese Prime Minister Shinzo Abe.
"That has the market spooked, and that’s what’s behind the
move lower in rates today," said Gennadiy Goldberg, an interest
rate strategist at TD Securities in New York.
Ten-year Treasury yields dropped as low as 2.086
percent, the lowest since Nov. 10, 2016 - two days after Trump
won the U.S. presidential election - before rising back to 2.14
percent.
The yield curve between two- and 10-year Treasuries
flattened as far as 77 basis points, from 83
basis points late on Monday and the narrowest level since June
27.
Some reluctance to buy bonds at their lowest yields of the
year was seen as capping the rally.
"The question becomes how heavily positioned in Treasuries
do you want to be when yields are at year-to-date lows," said
Goldberg. "I think that’s making it a little bit difficult to be
positioned extremely."
The Treasury Department saw strong demand for its $28
billion sale of U.S. seven-year notes, despite the debt paying
the lowest yields since October.
Indirect bidders, which include fund managers and foreign
central banks, purchased 68.80 percent of the latest seven-year
note offering , their biggest share since the record
high 81.69 percent in April.
Market participants are also focused on a busy week of data
this week, culminating in Friday's closely-watched U.S.
employment report for August.
August payrolls numbers have missed expectations for the
past six consecutive years, and for 13 out of the last 17 years,
which could lead to a modest rally in Treasuries if it occurs
again, said Mike Schumacher, head of rate strategy at Wells
Fargo in New York.
Buying for month-end extensions may also boost bonds through
Thursday, with potentially further strength on Friday as the
extension is larger than average.
"The month-end index extension is pretty large. Most of that
will probably happen on the 31st, but still you could have some
knock-on effects on the first," Schumacher said.
Investors are also evaluating whether Tropical Storm Harvey
is likely to have a lasting impact on the U.S. economy, after
bringing catastrophic flooding to Texas.
(Editing by G Crosse)
)